anciers, the financial press, stock exchange circu- lars issued by companies divesting subsidiaries as
MBOs and companies’ annual reports. The data- base has no lower size cut-off and is unique in ef-
fectively representing the universe of buy-outs in the UK. Data on failures of buy-outs and buy-ins
are collected by CMBOR from its regular surveys of participants in the buy-out market, Companies
House returns and Extel, monitoring of the finan- cial press and the London Gazette.
From Companies House we obtained microfich- es for 226 of the 402 MBO receivership cases
identified on the CMBOR database. The total of 402 receiverships represents 11.7 of the 3,436
buy-outs identified by CMBOR in this period.
6
Of these, 161 were found to be unsuitable for analysis
for a number of reasons such as lack of data on ap- pointment of the receiver or absence of receivers’
receipts and payments accounts; receiver appoint- ed very recently; some cases of voluntary liquida-
tions; problems with establishing correct company identity; or the receivership was still continuing at
the time our analysis was undertaken and it was likely that further amounts would be realised for
the secured creditors. We therefore identified 65 cases where the receivership process was complete
but of this total, cost of receivership data were not available for eight firms. The detailed direct cost
analysis in this paper, therefore, relates to the re- maining 57 cases where the receivership process
was complete, with the company having been struck off or, while technically continuing, the re-
ceiver had filed the final receipts and payments ac- counts or the receivers informed us directly that
the receivership was effectively complete.
Data on the number of secured creditors and the amounts owing to each are obtained from the di-
rectors’ Statements of Affairs. All amounts due to secured creditors include accrued interest. The
mode of sale of the MBO by the receivers and the identity of the receivers are obtained from the re-
ceivers’ report to the creditors. The amount of se- cured debt repaid by the receivers, the receivers’
fees and the on-going trading expenditures are de- termined from the receivers’ annual receipts and
payments accounts. The value of the MBO at the date it is set up is taken from the CMBOR database
or from the value of total assets less current liabil- ities from the first published balance sheet subse-
quent to the MBO being established.
Accounting data from the MBOs’ published fi- nancial statements are available for only a subset
of 42 cases in our population. Where more than one set of accounts is available, the last set prior to
the appointment of the receivers is used.
5. Descriptive statistics
As shown in Table 1, the period until formal termi- nation of the receivership is no longer than three
years in the majority 63 of cases. In some cases, however, this period can be substantially
longer and in 10 of our 65 cases it exceeds six years. Table 2 which covers the 57 cases for
which we have full data for our costs tests shows, however, that very little significant activity occurs
beyond year three in terms of secured debt repay- ment, payment of receivers’ fees and other direct
receivership costs, or the incurring of trading costs by the receiver. By the end of the third year, on av-
erage 98.3 of debt repayments have been made, 92.8 of fees and 96.3 of other receivership
costs have been paid and 92.6 of trading costs have been disbursed. Due to the lack of apparent
activity in the later formal years of lengthy re- ceiverships, in some tests we use an alternative in-
dicator to measure the ‘effective’ length of the receiverships. This is deemed to be the year by
which 95 of the secured debt repayments have been made. Table 1 shows that almost one-half of
the 65 receiverships are effectively completed ac- cording to this measure during their first year, and
89.2 are completed in this sense by year three.
Direct receivership costs are evaluated both in relation to the amount of secured debt owing at the
start of the receivership, which can be viewed as a measure of the size of the job facing the receivers
at the outset, and in relation to receivership pro- ceeds, which is used as a measure of output from
the receivership process. Receivership proceeds comprise payments to the secured creditors plus
receivers’ fees and other direct receivership costs,
7
with alternative measures either including gross proceeds or excluding net proceeds on-going
trading expenditures, as explained in Section 3.2 above.
8
Receivers’ fees plus other direct receiver- ship costs are equivalent to just over one-quarter of
secured debt owing Table 3, Panel A and account on average for 30 of net receivership proceeds
Table 3, Panel B, which is within the range found by Franks and Sussman 2005.
9
After allowing for
Vol. 38 No. 1. 2008 77
6
Some 26 of the buy-outs completed in this period involved public to private transactions 0.8, of which six had entered
receivership by the end of 2006. See footnote 1 for details of overall receivership rates compared to overall MBO receiver-
ships.
7
Other receivership costs total £43,600 on average median £23,600, with legal fees accounting for 61.5 of these,
agents’ and valuers’ fees 29.6 and receivers’ expenses, in- cluding advertising, 8.9.
8
Repayments to preferential creditors are not included due to lack of reliable data. Franks and Sussman 2005 have these
data for only part of their sample, and for these cases pay- ments to the preferential creditors amount on average to only
4.9 median = 1.1 of total proceeds. To this extent, there- fore, our measures of receivership costs to total proceeds may
be overstated.
9
Our finding of direct receivership costs comprising 30 of net receivership proceeds i.e. of liquidation value con-
trasts with only 19.1 reported on the same basis by Thorburn 2000 in Sweden where the regime is somewhat different.
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receivership and other fees, secured debt repaid amounts to a mean of 70 of net proceeds. Other
continuing trading disbursements are particularly high, accounting for a mean of 51.4 and a medi-
an of 23.9 of total secured debt, with a mean of 56.9 and a median of 49 of total secured debt
being repaid Table 3, Panel A. Continuing trad- ing disbursements also account for 28.6 of gross
receivership proceeds, leaving approximately one- half of both the mean and median gross proceeds
for the secured creditors Table 3, Panel C. Illustrative examples of the nature of receivers’ on-
going trading costs are shown in the Appendix. As shown in Table 4, which encompasses the
companies with accounting data, the last accounts prior to entering receivership not surprisingly
show these firms to have only a marginally posi- tive median return on assets 2 and a median in-
terest cover well below one 0.79. Ninety percent of assets are funded by liabilities, and liquidity is
poor with a median acid test ratio value of only 0.68. Median fixed assets and debtors both account
for about 30 of total assets and the median value of stocks to total assets is 21. These assets could
78 ACCOUNTING AND BUSINESS RESEARCH
Table 1 Length of receivership
This table identifies the number and percentage of companies where the receivership has been completed by year. We distinguish between actual and effective length of receivership. Effective length of receivership is de-
fined as elapsed time by which 95 of secured debt is repaid.
Actual length of Effective length of
receivership receivership
No. of years No. of cases
of cases No. of cases
of cases 1
2 3.1
31 47.7
2 22
33.8 21
32.3 3
17 26.1
6 9.2
4 7
10.8 2
3.1 5
5 7.7
3 4.6
6 5
7.7 2
3.1 7
3 4.6
0.0 8
3 4.6
0.0 9
0.0 0.0
10 1
1.5 0.0
Total 65
100.0 65
100.0
Table 2 Receivership activity over period of receivership
This table identifies the mean percentages of secured debt repaid, receivers’ fees and other receivership costs paid and trading costs paid in each year of the receivership.
Year Mean percentage
Mean percentage Mean percentage
Mean percentage of secured debt
of receivers’ fees of other receivership
of trading costs repaid in year
paid in year costs paid in year
paid in year 1
73.7 69.4
77.5 79.3
2 17.0
17.7 13.0
9.8 3
7.6 5.7
5.8 3.5
4 0.9
3.2 0.3
2.2 5
0.5 0.2
1.4 1.4
6 0.3
1.2 2.0
0.9 7
0.0 0.1
0.0 0.2
8 0.0
2.3 0.0
2.3 9
0.0 0.2
0.0 0.2
10 0.0
0.1 0.0
0.1 N=57
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potentially provide security for further borrowings by these firms, but it should be remembered that
all the firms already have secured debt and data are not available on the proportion of free assets still
available.
Table 5 provides additional descriptive statistics on the sample and indicates the distinctiveness of
MBOs.
10
Franks and Sussman 2005 show mean recovery rates for their three banks ranging be-
tween 73.8 and 76.7. We have a much lower mean recovery rate at 57 Table 5, Panel A.
Also in contrast to Franks and Sussman who find that for one of their banks the median recovery rate
is 100, in only 14 25 of our cases do the se- cured creditors get a 100 repayment, indicating
that over-security does not seem to be widespread. Also 20 35 cases have more than one secured
creditor, whereas Franks and Sussman’s compa- nies tend to have only the one ‘main’ bank. Over
two thirds 70.2 of firms were sold piecemeal with the balance being sold either as a going con-
cern 10 cases, 17.5 or part going concern and part piecemeal 7 cases, 12.3. Scoring a partial
going-concern sale as half, the overall rate of going-concern realisations is 24, substantially
lower than the 44 found by Franks and Sussman 2005. Median receivership costs in those firms
sold piecemeal were significantly smaller but only weakly so, at the 10 level than for other
forms of sale Table 5, Panel B. The companies are evenly divided in terms of whether the receiv-
er was part of a major international Big Six ac- counting firm.
11
6. Results
